UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended SeptemberJune 30, 20172022    

OR

For the transition period from to

Commission File Number: 001-13458

SCOTT’S LIQUID GOLD-INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (303) 373-4860

Securities registered pursuant to Section 12(b) of the Exchange Act.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.Act).    Yes  ☐    No  ☒

As of, November 13, 2017,August 12, 2022 the Registrantregistrant had 11,885,83912,749,156 shares of its common stock, $0.10 par value per share, outstanding.

CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of U.S. federal securities laws.the Private Securities Litigation Reform Act of 1995, in addition to historical information. All statements, other than statements of historical fact,facts, included in this Report that address activities, events, or developments with respect to our financial condition, results of operations, or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements.You can typically identify forward-looking statements by the use of words, such as “may,” “could,” “should,” “assume,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” and other similar words. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

The forward-looking statements contained in this Report are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Forward-looking statements and our performance inherently involve riskrisks and uncertaintyuncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to:

We caution you that forward-looking statements are not guarantees of future performance and that actual results or performance may be materially different from those expressed or implied in the forward-looking statements. The forward-looking statements in this Report speak as of the filing date of this Report. Although we may from time to time voluntarily update our prior forward-looking statements, we undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this Report.

TABLE OF CONTENTS

PART

PART I

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of IncomeOperations (Unaudited)

Scott’s Liquid Gold-Inc. & Subsidiaries(in thousands, except per share data)

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except par value amounts)

See accompanying notes to these Condensed Consolidated Financial Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(in thousands)

See accompanying notes to these Condensed Consolidated Financial Statements (Unaudited).

Statements.

Condensed Consolidated Balance SheetsSCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Scott’s Liquid Gold-Inc. & Subsidiaries

See accompanying notes to these Condensed Consolidated Financial Statements (Unaudited).

Condensed Consolidated Statements of Cash Flows (Unaudited)

Scott’s Liquid Gold-Inc. & Subsidiaries(in thousands)

Supplemental disclosure of non-cash activity:

In connection with the Company’s Acquisition (defined in Note 5) during the nine months ended September 30, 2016, the Company acquired $400,000 of inventory, intangible assets of $7,079,400, and goodwill of $1,520,600 for a total of $9,000,000.

See accompanying notes to these Condensed Consolidated Financial Statements (Unaudited).

Statements.

SCOTT’S LIQUID GOLD-INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Scott’s Liquid Gold-Inc. & Subsidiaries(in thousands, except per share data)

Scott’s Liquid Gold-Inc. (a, a Colorado corporation)corporation was incorporated on February 15, 1954. Scott’s Liquid Gold-Inc. and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” or “us”) develop, manufacture, market and sell high quality household and skin and hair care products. We are also a distributor in the United States of Montagne Jeunesse skin sachets and Batiste Dry Shampoo manufactured by two other companies. Our business is comprised of two segments,2 segments: household products and skinhealth and hairbeauty care products.

Our Condensed Consolidated Financial Statements (Unaudited) include our accounts and those of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

On December 23, 2021, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell to all of our right, title and interest in and to certain assets of the Dryel^® product line. We have reflected the operations of the Dryel^® product line as discontinued operations for all periods presented, which were previously classified under our household products segment. See Note 2 for further information.

The unaudited Condensed Consolidated Statements of Income,Operations, Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Cash Flows included in this Report have been prepared by the Company. In our opinion, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at SeptemberJune 30, 20172022 and results of operations and cash flows for all periods have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements (Unaudited) should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021. The results of operations for the period ended SeptemberJune 30, 20172022 are not necessarily indicative of the operating results for the full year.year and are unaudited.

The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires us to make estimates and assumptions that affect the reported amounts in our financial statements of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to, the realization of deferred tax assets, reserves for slow moving and obsolete inventory, customer returns and allowances, intangible asset useful lives and amortization method, fair value of assets acquired in business combinations, operating lease right-of-use assets and operating lease liabilities, and stock-based compensation. Actual results could differ from our estimates.

We consider all highly liquid investments with an original maturity of three months or less at the date of acquisition to beCash and restricted cash equivalents.

On March 16, 2011, we entered into a financing agreement with Wells Fargo Bank, National Association (“Wells Fargo”) for the purpose of lowering the cost of borrowing associated with the financing of our accounts receivable. Pursuant to this agreement, we were able to sell accounts receivable from Wal-Mart Stores, Inc. (“Wal-Mart”) at a discount to Wells Fargo. On January 29, 2016 we terminated our agreement with Wells Fargo due to Wal-Mart changing its accounts payable policy.

During the nine months ended September 30, 2017 and 2016, we sold approximately $0 and $306,800, respectively, of our relevant accounts receivable to Wells Fargo for approximately $0 and $305,200, respectively. The difference between the invoiced amountconsist of the receivable and the cash that we received from Wells Fargo is a cost to us. This cost is in lieu of any cash discount our customer would have been allowed and, thus, is treated in a manner consistent with standard trade discounts granted to our customers.following:

The reporting of the sale of accounts receivable to Wells Fargo is treated as a sale rather than as a secured borrowing. As a result, affected accounts receivable are relieved from the Company’s financial statements upon receipt of the cash proceeds.

Inventories consist of raw materials and finished goods and are stated at the lower of cost (first-in, first-out method) or market.net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We record aestimate an inventory reserve, which is generally not material to our financial statements, for slow moving and obsolete products and raw materials. We estimate this reservematerials based upon, among other things, an assessment of historical and anticipated sales.sales of our products. In the event that actual results differ from our estimates, the results of future periods may be impacted.

Inventories were comprised of the following at:

Our remaining raw materials balance is to be sold to contract manufacturing partners based on production demand.

Property and equipment are recorded at historical cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets ranging from three to 20 years. Production equipment and production support equipment are estimated to have useful lives of 15 to 20 years and three to 10 years, respectively. Office furniture and office machines are estimated to have useful lives of 10 to 20 years and three to five years, respectively. Maintenance and repairs are expensed as incurred. Improvements that extend the useful lives of the asset or provide improved efficiency are capitalized.

IntangibleLease assets consistand lease liabilities are recognized at the commencement of customer relationships, trade names, formulasan arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and batching processeslease liabilities represent the obligation to make lease payments arising from the lease. These assets and a non-compete agreement. The fairliabilities are initially recognized based on the present value of lease payments over the intangiblelease term calculated using our incremental borrowing rate generally applicable to the location of the lease asset, unless the implicit rate is readily determinable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Certain nonlease components, such as maintenance and other services provided by the lessor, are included in the valuation of the lease. Leases with an initial term of 12 months or less, which are not material to our financial statements, are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Lease agreements with lease and nonlease components are combined as a single lease component.

The Company evaluates reimbursable leasehold improvements based on whether improvements are indicative of a lessor or lessee asset. The Company concluded that all of its reimbursable leasehold improvement payments have qualified as lessor assets is amortized over their estimated useful lives and, range from a period of five to 15 years and are reviewedas such, have accounted for impairment when changesleasehold improvement payments as prepaid rent included in market circumstances occur and written down to fair value if impaired.prepaid expenses on the Condensed Consolidated Balance Sheets.

Goodwill consistsissubjecttoimpairmenttestsatleastannuallyorwheneventsorchangesincircumstancesindicatethatanassetmaybeimpaired.Otherintangibleassetswithfinitelives,suchascustomerrelationships,tradenames,andformulas,areamortizedovertheirestimatedusefullives,generallyrangingfrom5 to 25 years.AmortizationexpenserelatedtointangibleassetsisincludedinOperating Expenses on the Consolidated Statement of Operations.

Internal-use software costs recognized as an intangible asset relates to capitalizable costs of computer software obtained for internal-use as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40-30-1. All other internal-use software costs are expensed as incurred by the Company. Amortization will be recorded over the estimated useful life of the excesssoftware once the software is ready for its intended use and placed into service. In the second quarter of the purchase price over the fair value of tangible2022, our internal-use software was implemented for its intended use. The estimated useful life for internal-use software is five years and identifiable intangible assets acquired in the Acquisition discussed in Notes 5will be periodically reassessed based on considerations for obsolescence, technology, competition, and 6. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual impairment tests, and in certain circumstances these assets are written down to fair value if impaired.other economic factors.

Financial instruments which potentially subject us to concentrations of credit risk include cash, andrestricted cash, equivalents and accounts receivable. We maintain our cash balances in the form of bank demand deposits with financial institutions that we believe are creditworthy. During the nine months ended September 30, 2017,Historically, we have maintained balances in various operating accounts in excess of federally insured limits. We establish an allowance for doubtful accounts, which is generally not material to our financial statements, based upon factors surrounding the credit risk of specific customers, historical trends and other information. We have no0 significant financial instruments with off-balance sheet risk of accounting loss, such as foreign exchange contracts, option contracts or other foreign currency hedging arrangements.

The recorded amounts for cash, andrestricted cash, equivalents, receivables, other current assets, accounts payable, and accrued expenses and current maturities of long-term debt approximate fair value due to the short-term nature of these financial instruments. The recorded amount of long-term debt approximates fair value and is estimated primarily based on current market rates for debt with similar terms and remaining maturities. At September 30, 2017, we had long-term debt of $1,400,000 and no outstanding balance on our line-of-credit. At December 31, 2016 we had long-term debt of $2,000,000 and a $750,000 outstanding balance on our line-of-credit.

Income taxes reflect the tax effects of transactions reported in the financial statementsCondensed Consolidated Financial Statements and consist of taxes currently payable plus deferred income taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. A valuation allowance is providedestablished when it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which related temporary differences become deductible. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Taxes are reported based on tax positions that meet a more-likely-than-not standard and that are measured at the amount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to be recorded as unrecognized tax benefits or expense. We classify penalty and interest expense related to income tax liabilities as an income tax expense. There are no0 significant interest and penalties recognized in the Condensed Consolidated Statements of Income or accrued on the Condensed Consolidated Balance Sheets.

Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The provision for income taxes for the three and six months ended June 30, 2022 differs from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax income primarily due to valuation allowance. The effective tax rate for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 was 35.6%0.0% and 40.8% respectively,26.4% respectively.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, and permanent differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known or as the tax environment changes.

In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a valuation allowance has been recorded against the Company’s net deferred tax assets as of June 30, 2022, and December 31, 2021.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which differs fromis aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the statutoryCOVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. The tax impact of the carryback of the 2020 loss was recorded in the first quarter 2021 income tax rate dueprovision. We elected to permanent book todefer our portion of social security tax differences.payments, and we paid this liability in the third quarter of 2021.

Our revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until it is met. In our case,When consideration is received in advance of the criteria generallydelivery of goods or services, a contract liability is recorded. Our revenue contracts are met when: (i) we have an arrangementidentified when purchase orders are received and accepted from customers and represent a single performance obligation to sell our products to a product; (ii) we have deliveredcustomer.

Net sales reflect the product in accordance with that arrangement; (iii) thetransaction prices for contracts, which include products shipped at selling list prices reduced by variable consideration. Variable consideration includes estimates for expected customer allowances, promotional programs for consumers, and sales pricereturns. Based on our customer-by-customer history, our variable consideration estimates are generally accurate and subsequent adjustments are generally immaterial.

Variable consideration is primarily comprised of the product is determinable; and (iv) we believe that we will be paid for the sale.

We establishcustomer allowances. Customer allowances primarily include reserves for customer returnstrade promotions to support price features, displays, slotting fees, and other merchandising of our products to our customers. Promotional programs for consumers primarily include coupons, rebates, and certain other promotional programs, and do not represent a significant portion of variable consideration. The costs of both customer allowances and promotional programs for consumers are estimated using either the expected value or most likely amount approach, depending on the nature of the allowance, using all reasonably available information, including our historical experience and current expectations. Customer allowances and promotional programs for consumers are reflected in the transaction price when sales are recorded. We may adjust our estimates based on actual results and consideration of other factors that cause allowances. We estimate these reservesIn the event that actual results differ from our estimates, the results of future periods may be impacted.

Sales returns are generally not material to our financial statements, and do not comprise a significant portion of variable consideration. Estimates for sales returns are based upon,on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These reservesestimates are established in the period of sale and reduce our revenue in that period.

Our reserve for customer allowances includes primarily reserves for trade promotions to support price features, displays, slotting fees and other merchandising of our products to our customers. The actual level of returns and customer allowances is influenced by several factors, includingSales are recorded at the promotional efforts of our customers, changes in mix of our customers, changes in the mixtime that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we sellconsider several indicators, including significant risks and rewards of products, our right to payment, and the maturitylegal title of the product. We may change our estimates basedproducts. Based on actual results and consideration of other factors that cause returns and allowances. In the event that actual results differ from our estimates, the results of future periods may be impacted.

We also establish reserves for coupons, rebates and certain other promotional programs for consumers. We estimate these reserves based upon, among other things, an assessment of historical trends and currentcontrol indicators, sales activity. These reserves are recorded as a reduction of revenue at the later of the date at which the revenue isgenerally recognized or the date at which the sale incentive is offered.when products are delivered to customers.

We have also established an allowance for doubtful accounts. We estimate this allowance based upon, among other things, an assessment of the credit risk of specific customers and historical trends. We believe our allowance for doubtful accounts is adequate to absorb any losses which may arise. In the event that actual losses differ from our estimates, the results of future periods may be impacted.

At September 30, 2017Customer allowances for trade promotions and December 31, 2016 approximately $831,400allowance for doubtful accounts are included in net accounts receivable on the Condensed Consolidated Balance Sheets and $1,184,700, respectively, had been reservedwere as a reduction of accounts receivable. Trade promotions to our customers and incentives such as coupons to our consumers are deducted from gross sales and totaled $1,854,100 and $1,584,500 for the nine months ended September 30, 2017 and 2016, respectively, and totaled $522,300 and $616,300 for the three months ended September 30, 2017 and 2016, respectively.follows:

AdvertisingWe expense advertising costs are expensed as incurred.

The Company accountsWe account for share based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determinesWe determine the estimated grant-date fair value of stock options with only service conditions using the Black-Scholes option pricing model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including the estimated fair value of underlying common stock, risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizesWe recognize compensation costs ratably over the vesting period using the straight-line method.method, which approximates the service period.

The Company issues restricted stock unit ("RSUs") awards with restrictions that lapse upon the passage of time (service vesting) and satisfaction of market conditions targeted to our Company’s stock price. For those RSU awards with only service vesting, the Company recognizes compensation cost on a straight-line basis over the service period. For awards with both market and service conditions, the Company starts recognizing compensation cost over the requisite service period, with the effect of the market conditions reflected in the calculation of the award's fair value at grant date. The Company values awards with only service vesting requirements based on the grant date share price. The Company values awards with market and service conditions using a Monte Carlo simulation. The Company determines the requisite service period for awards with both market and service conditions based on the longer of the explicit service period and the derived service period. Stock awards that contain market vesting conditions are included in the computations of diluted EPS reflecting the average number of shares that would be issued based on the highest 30-day average market price during the reporting periods, if their effect is dilutive. If the condition is based on an average of market prices over some period of time, the corresponding average for the period is used.

Cost of sales includes costs associated with manufacturing and distribution including labor, materials, freight-in, purchasing and receiving, quality control, internal transfer costs, repairs, maintenance, and other indirect costs, as well as warehousing and distribution costs. We classify shipping and handling costs comprised primarily of freight-out as selling expenses. Other selling expenses consist primarily of wages and benefitscosts for sales and sales support personnel, travel, brokerage commissions, and promotional costs. Freight-out costs as well as certain other indirect costs. Shippingincluded in selling expenses totaled $456 and handling costs totaled $1,864,400 and $1,149,600 for the nine months ended September 30, 2017 and 2016, respectively, and totaled $611,200 and $439,000$898 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, and totaled $1,296 and $1,904 for the six months ended June 30, 2022 and 2021, respectively.

General and administrative expenses consist primarily of wages and benefits associated with management and administrative support departments, business insurance costs, professional fees, office facility related expenses, and other general support costs.

On April 29, 2021, the Company announced that Mark E. Goldstein, the President and Chief Executive Officer of the Company and a member of the Board of Directors, retired effective as of April 26, 2021. In connection with Mr. Goldstein’s retirement, the Company and Mr. Goldstein entered into a Separation Agreement, Waiver and Release (the “Separation Agreement”), pursuant to which the Company will pay Mr. Goldstein $720 in severance payments (equal to 18 months base salary) over a period of 30 months and reimbursement for the costs of continuing health benefits for a period of 18 months. Severance costs of $805 were recognized in the second quarter of 2021 and are included in general and administrative expenses. Accrued severance costs are included in accrued expenses on the Consolidated Balance Sheets.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). This guidance, as amended by subsequent ASUs on the topic, outlines a comprehensive model for determining revenue recognition for contracts with customers, which replaces numerous industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. This guidance implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The new guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts and customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The new guidance is effective for reporting periods beginning after December 15, 2017, and early adoption is permitted. Entities can transition to the new guidance either retrospectively or as a cumulative-effect adjustment as of the date of the adoption. We have substantially completed our assessment of the new guidance and continue to make progress on its implementation. We plan to adopt the new guidance on January 1, 2018, on a “full retrospective” basis. Currently, we believe that the new guidance is not expected to have a material impact on our financial statements and we are currently assessing the need for expanded financial disclosures, if any.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Payments” (“ASU 2016-15”), which provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. Application of ASU 2016-15, which should be applied prospectively, is required for the annual and interim periods beginning after December 15, 2017. Early adoption is permitted. ASU 2016-15 is not expected to have a material impact on our financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”), which provides a more defined framework to use in determining when a set of assets and activities is a business. ASU 2017-01 also provides greater consistency in applying the guidance, making the definition of a business more operable. ASU 2017-01 is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017. ASU 2017-01 is not expected to have a material impact on our financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. ASU 2017-09 is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017, with early adoption permitted. ASU 2017-09 is not expected to have a material impact on our financial statements.

In February 2016,March 2020, the FASB issued ASU No. 2016-02, “Leases2020-04, “Reference Rate Reform (Topic 842)”848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2016-02”2020-04”),. The purpose of ASU 2020-04 is to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This guidance primarily provides temporary optional expedients which requiressimplify the accounting for contract modifications to existing debt agreements expected to arise from the market transition from LIBOR to alternative reference rates. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply amendments prospectively through December 31, 2022. The optional expedients were available to be used upon issuance of this guidance but we have not yet applied the guidance because we have not yet modified any of our existing contracts for reference rate reform. The Company is currently assessing the impact of ASU 2020-04 on our Condensed Consolidated Financial Statements.

Note 2.        Discontinued Operations

On December 23, 2021, we entered into an asset purchase agreement with a lesseebuyer, pursuant to recordwhich we agreed to sell all of our right, title and interest in and to certain assets of the Dryel^® product line. The total consideration paid to us was $4,850, plus an amount equal to the value of the Dryel^® inventory of $440, subject to post-close adjustment. At closing, $500 of the total consideration was held in escrow for a right-of-use asset and a lease liabilitytwelve-month period following the closing date, to be released ratably in four installments in 2022. We received the first 2 installment payments during the first six months ended June 30, 2022. This consideration is reflected as Restricted Cash on the balance sheet for all leases with terms longer than 12 months. Leases willCondensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively. Dryel^® generated approximately $2,800 of net sales in the trailing twelve-month period ending December 31, 2021.

Under ASC 360, a long-lived asset group should be classified as either finance or operating, with classification affectingheld for sale if all of the patternestablished criteria are met. The sale of expense recognitionDryel^® did not meet these criteria in the income statement. ASU 2016-02 is effectiveyear ending December 31, 2021, because we had not established an active program to locate a buyer and because the brand was not being marketed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is requiredsale. All efforts between the buyer and the Company occurred during the fourth quarter of 2021. As a result, there was no adjustment to fair value under ASC 360 guidance related to held for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We anticipate that most of our operating leases will result in recognition of additionalsale assets, and the corresponding liabilitiesdifference between the consideration paid to us and the carrying amount of all assets is reflected in the loss on sale of discontinued operations.

We have reflected the operations of the Dryel^® product line as discontinued operations. Our Condensed Consolidated Balance Sheets. We have not determinedSheets and Condensed Consolidated Statements of Operations report discontinued operations separate from continuing operations. Our Condensed Consolidated Statements of Equity and Statements of Cash Flows combine the amountresults of these transactionscontinuing and discontinued operations. As of the three and six months ended June 30, 2022, there were 0 operating results from discontinued operations included in the Condensed Consolidated Statements of Operations. As of June 30, 2022 and December 31, 2021, respectively, there were 0 assets and liabilities relating to discontinued operations presented separately in the Condensed Consolidated Balance Sheets. There were 0 capital expenditures or significant operating and investing noncash items related to discontinued operations during the final impactsix months ended June 30, 2022 and 2021, respectively. A summary of financial information related to our earningsdiscontinued operations is as the actual impact will depend on the Company’s lease portfolio at the time of adoption.follows:

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). ASU 2016-13 is not expected to have a material impact on our financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by eliminationReconciliation of the Step 2 requirement to calculate the implied fair value of goodwill. Instead, if a reporting unit’s carrying amount exceeds its fair value, an impairment charge will be recorded based on that difference. The impairment charge will be limitedLine Items Constituting Pretax Loss from Discontinued Operations to the amountAfter-Tax Loss from Discontinued Operations in the Condensed Consolidated Statements of goodwill allocated to that reporting unit. ASU 2017-04 will be applied prospectivelyOperations for the three and is effective for impairment tests performed after December 15, 2019, with early adoption permitted. ASU 2017-04 is not expected to have a material impact on our financial statements.six months ended June 30:

During the nine months ended September 30, 2017, we granted: (i) options to acquire 16,560 shares of our common stock to employees at prices ranging between $1.80 and $2.25 per share; and (ii) options to acquire 30,000 shares of our common stock to a non-employee board member at a price of $2.25 per share. During the nine months ended September 30, 2016,On January 18, 2022, we granted options to acquire 3,000 shares of our common stock25 RSUs to an employee at(the “2022 Individual Employee Grant”) with a price of $1.20 per share.

The weighted averagegrant date fair market value of the options granted in the nine months ended September 30, 2017 and 2016 was estimated$10. The 2022 Individual Employee Grant vested one-third on the initial grant date, and the remaining two-thirds will vest on each anniversary of the grant using a Black-Scholes option pricing model with the following assumptions:date.

On March 2, 2022, we granted 15 shares of restricted stock to one executive all of which vested on the grant date with a fair value of $18.

Compensation cost related to stock options recognized in operating results (included in generaltotaled $10 and administrative expenses) totaled $183,500 and $189,500$32 in the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively, and totaled $71,500 and $61,6002021, respectively. The stock options were fully vested in the three months ended September 30, 2017 and 2016, respectively. Approximately $495,000second quarter of total unrecognized compensation costs related to non-vested stock options is expected to be recognized over the next 12-60 months, depending on the vesting provisions of the options.2022. There was no0 tax benefit from recording the non-cash expense as it relates to the options granted to employees, as these were qualified stock options which are not normally tax deductible.

In 2005, we adopted a stock option planCompensation cost related to RSUs totaled $76 and $70 for our employees, officersthe six months ended June 30, 2022 and directors (the “2005 Plan”). In 2015, we adopted a stock option plan for our employees, officers and directors (the “2015 Plan”)2021, respectively. Approximately $197 of total unrecognized compensation costs related to replacenon-vested RSUs is expected to be recognized over the 2005 Plan, which expired on March 31, 2015.

Activity under our two stock option plans is as follows:next three years.

Per share data is determined by using the weighted average number of common shares outstanding. Common equivalent shares are considered only for diluted earnings per share, unless considered anti-dilutive. Common equivalent shares, determined using the treasury stock method, result from stock options with exercise prices that are below the average market price of the common stock.

Basic earnings per share include no dilution and are computed by dividing income available to common shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in our earnings.

A reconciliation of the weighted average number of common shares outstanding (in thousands) is as follows:follows. The dilutive effect of stock options and RSUs are excluded for periods in which the Company has a net loss because the impact is anti-dilutive.